“The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.” – Lord Acton

Jeff Olson, a 40 year old Californian Occupy activist was just acquitted after facing 13 years in prison for scrawling anti-bank chalk messages outside of three San Diego branches of the criminal cartel called Bank of America. The judge in the case barred Olson’s attorney from “mentioning the First Amendment, free speech, free expression, public forum, expressive conduct, or political speech during the trial.” Olson and his lawyer are bewildered by the judge’s mandate. Apparently so was the jury. Future victims may not be so lucky.

Meanwhile, the Canadian state is forbidding people from wearing masks during “unlawful assemblies,” targeting the iconic Guy Fawkes masks of the Occupy movement which primarily opposed financial oligarchy. The offense comes with a ten-year jail sentence.

To wit, organizing against banks is grounds for state-sanctioned FBI murder, as was advocating for civil rights and opposing the Vietnam war, as the family of Martin Luther King Jr. discovered in a court ruling in 1999 (Coretta Scott King vs. Jowers). Black Panther Fred Hampton also met the same fate at the hands of the FBI. Is financial liberation the new civil rights or anti-war movement? The new big no-no?

“To learn who rules over you, simply find out who you are not allowed to criticize.” – Voltaire

From whence does this animosity toward banks come? Does the institution perform a necessary and Pareto-improving service?

The military and police are a massive subsidy to the wealthy, protecting monopolized assets (including vital commodities like food and water) at tax-cattle expense. But the depersonalized surplus value extraction of finance is how they got rich in the first place. Bankers are wily, and have developed many means to dupe the sorry folk who actually work for a living. Just a few are summarized below.

Inflation and the Cantillon Effect

Central banks target an annual inflation rate of 3%. This rate compounds, so that, since the secret establishment of the Federal Reserve in 1913, the dollar has lost over 90% of its purchasing power. Major spates of devaluation occurred in the 1970s, beginning with the Nixon’s de facto default during the closure of the Gold Window and the end of Bretton Woods. Inflation robs the masses in at least two ways:

First, because the bourgeoisie hold their wealth in financial assets like equities and commodities that retain purchasing power in the face of currency devaluation. The poor keep cash on hand and their wages do not keep pace with inflation.

Second, via the Cantillon Effect, named after 18th century economist Richard Cantillon. Former Lehman and Deutsche Bank director John Butler summarizes it this way:

New money enters the economy by being spent [or invested]. But the first to spend it does so before it begins to lose purchasing power as it expands the existing money supply. The money then gradually permeates the entire economy, driving up the overall price level. Those last in line for the new money, primarily everyday savers and consumers, eventually find that, by being last in line for the new money, their accumulated savings are being de facto ‘diluted’ and the purchasing power of their wages diminished. [Federal Reserve member banks get that fresh money first].

Extropolated to the global level, this non-neutrality of money implies that an issuer of a reserve currency is the primary beneficiary of the ‘Cantillon effect’. First in line for the new international money you have the owners of capital in the reserve issuing countries, who use the new money to accumulate more global assets, and at the end you have workers the world over who receive the new money last, after it has placed general upward pressure on prices. Greater global wealth disparity is the inevitable result.

The Cantillon Effect is also a tax imposed by reserve-currency printers on the entire globe. As China very well knows, its bond holdings do not give it the “upper hand” on the US as so many fear, but as David Graeber puts it, bond holders pay a form of tribute to the global military hegemon in exchange for a decreasingly ravenous demand market for cheap plastic crap.

Usurious Interest Rates

High interest rates artificially increase return on capital and burden those multitudes who must borrow merely to live between evaporating paychecks. In a freed market, savings would not be devalued by inflation and would accumulate. People would loan it out as the available credit pool expanded, and interest rates would drop as lenders competed for borrowers. The price of money (or interest rate) would actually reflect the aggregate savings and borrower time-preference (averting bubbles, malinvestment and the hollowing of the capital base). A decentralized, antifragile banking system would be less prone to regular catastrophic collapse.

Bailouts and Moral Hazard Augmentation

Between 2008 and 2011, the Federal Reserve has lent, at very low interest rates (as low as zero) a lot of money to the very banks that nearly destroyed the financial system. How much, exactly? Somewhere in the realm of $29.6 trillion. (For scale, US GDP is $14 trillion). The Fed also bought worthless assets like mortgage backed securities for 100 pennies on the dollar. Every dollar printed devalues the dollars in people’s pockets. Furthermore, these free loans were mainly piled into US treasury bonds, which carry an interest yield funded by the taxpayer.

The expectation of a forthcoming state bailout leads to moral hazard. But the Federal Deposit Insurance Commission pioneered moral hazard. This backstop, along with the Discount Window, enables banks to take profitable risks that they otherwise could not, like High Frequency Trading algorithms, which steal pennies and manipulate asset prices (but also cause flash crashes and destroy firms in milliseconds).

Not to mention banks get away with screwing over their own clients — in a free banking system, reputation is vital. Not in the Financially Repressed ponzi world of the vampire squid Government Sachs, however, where former CEO Hank Paulson gets appointed Secretary of the Treasury, or when international banks collude with central banks to rig the most important interest rate in the world, the LIBOR scandal.

The entire cartelized, state-protected banking kleptocracy exists not to efficiently allocate savings for maximum productive output, but rather to ingeniously extract wealth from the distracted and demoralized populace (with varying degrees of surreptitiousness — today it is quite blatant).

Individualist anarchist Benjamin Tucker ennumerated the Four Monopolies in 1888 (and Charles W. Johnson five more in 2011), the first of which being the money monopoly, a description that rings true today.

The Secret of Oz is a critically acclaimed documentary that provides an unafraid and comprehensive history of modern banking, recommended to all those who desire a firm theoretical basis on which to Chalk-ccupy the megabanks. Now that there is legal precedent for chalk not being considered vandalism, perhaps it should be done more. Activists reject the cartel by moving their money to credit unions and by becoming their own central banks via crypto-currencies, local currencies and precious metals.